Author: Young Jun Choi(Bank of Korea)

  This study examines the impact of Korea's debtor-in-possession (DIP) system on the performance of distressed firms after 10 years of implementation. While the DIP system was introduced in Korea to encourage distressed firms to file for rehabilitation by guaranteeing management rights, there have been discussions on improving the system. The results show that DIP firms have a lower degree of earnings management than non-DIP firms, but there is no significant difference in financial performance. Overall, Korea’s DIP system and related policies may need to be revisited to ensure they achieve their goals.